Returns to Capital in Microenterprises: Evidence from a Field Experiment

Suresh de Mel
David McKenzie
Christopher Woodruff
Publication Type: 
Papers
Journal Name: 
Quarterly Journal of Economics
Journal Volume: 
123
Journal Number: 
4
Pages: 
1329-1372
Publication Year: 
2008

We use randomized grants to generate shocks to capital stock for a set of Sri Lankan microenterprises. We find the average real return to capital in these enterprises is 4.6%–5.3% per month (55%–63% per year), substantially higher than market interest rates. We then examine the heterogeneity of treatment effects. Returns are found to vary with entrepreneurial ability and with household wealth, but not to vary with measures of risk aversion or uncertainty. Treatment impacts are also significantly larger for enterprises owned by males; indeed, we find no positive return in enterprises owned by females.

Presented at the CFSP & MFI 2009 Finance and Development Conference.

Region: 
South and Central Asia
Country: 
Sri Lanka
Topic: 
Econometrics and Statistical Methods
Topic: 
Financial Institutions
Topic: 
Economic Modeling
Topic: 
Enterprise
Topic: 
Risk
Topic: 
Experiments
Topic: 
Income and Wealth
Topic: 
Randomized Evaluation
Topic: 
Microfinance